Litton Reports Good 3Q Results

Friday, June 02, 2000

Litton Industries, after seeing its shares drop more than 60 percent over the past 12 months (see chart, page 2), caught in a bearish defense industry down draft, reported great third quarter results last week.

Litton Industries reported that diluted earnings per share rose 23% to $1.35 for the third quarter, compared with diluted earnings per share of $1.10 for the third quarter of fiscal 1999.

Excluding a one-time gain on sale of businesses, third quarter diluted earnings per share increased 21% to $1.33. Net earnings for the third quarter were $61.8 million versus $50.9 million for the same period last year. Revenue for the third quarter increased 11% to $1.4 billion, compared with $1.26 billion for the comparable period of the prior year.

Revenue for the first nine months of fiscal 2000 was $4.1 billion, a 15% increase over the first nine months of fiscal 1999. Net earnings and diluted earnings per share were $148.6 million and $3.22 including net non-recurring gains ($0.04 per share) and a charge for the cumulative effect of a one-time accounting change ($0.06 per share), compared with $142.1 million and $3.05 for the first nine months of last fiscal year.

Litton ended the third quarter of fiscal 2000 with total backlog of $10.6 billion, including non-firm, unfunded backlog of $2.2 billion, compared to $10.4 billion at the end of the second quarter, which included $2.2 billion of non-firm, unfunded backlog. Bookings during the first nine months were approximately $4.5 billion.

"Litton's third quarter results met our expectations and demonstrated double-digit growth in revenue, net income and earnings per share. We are encouraged by our record backlog and solid performances in our core businesses," said Michael R. Brown, Litton's chairman. "And yesterday's $478 million award to Avondale for the LPD 20 adds support to our positive outlook."

Litton Ship Systems posted revenue of $499 million and operating profit of $69.5 million, increases of 65% and 54% respectively over the prior year third quarter, largely due to the acquisition of Avondale and maturing contracts at Ingalls. Ship Systems backlog increased to $5.7 billion from $5.6 billion at the end of the second quarter.

Information Systems third quarter revenue declined to $371.7 million from $425.6 million for the same period of fiscal 1999 due to the sale of several non-core businesses and reduced revenue at the Data Systems (DSD) and PRC divisions. PRC revenue was impacted by lower activity in the civil systems and services sector. Information Systems operating profit, exclusive of the pre-tax gain on sale of businesses, increased to $13.6 million from $13.2 million. As anticipated at the beginning of the fiscal year, Information Systems results continue to be affected by planned investments in DSD development programs moving to production. Operating profit was also affected by lower than expected performance in PRC's municipal programs. Information Systems backlog was unchanged for the quarter at $3.2 billion, including non-firm unfunded backlog of $2.2 billion. During the third quarter, the company successfully sold its weather information systems and agricultural imaging businesses, which resulted in a pre-tax gain of $11.6 million. The pre-tax gain was essentially offset by taxes, resulting in an after-tax gain of $0.5 million.

Advanced Electronics third quarter revenue declined to $360 million from $381 million last year. Operating profit increased to $35.5 million compared with $32.9 million in the previous year's comparable quarter. Advanced Electronics revenue continues to be impacted by lower sales of legacy airborne electronics. Improved performance in several business units along with the favorable resolution of a contract-related claim in Canada more than offset the impact of reduced revenue. Backlog in Advanced Electronics rose to $1.4 billion at the end of the third quarter compared to $1.3 billion at the end of the second quarter.
Electronic Components and Materials (EC&M) revenue and operating profit in the third quarter increased 13% and 9% respectively to $179 million and $28.9 million, versus $158 million and $26.6 million for the prior year. Revenue growth reflected strong demand for components and materials for the wireless telecommunications and microelectronic device markets. EC&M's book to bill ratio was 1.32 at the end of the third quarter compared to 1.34 at the end of the second quarter.

Net pre-tax periodic pension income totaled $64.3 million and $21.4 million for the first nine months and third quarter of fiscal 2000 compared to $46.5 million and $15.5 million for the
comparable fiscal 1999 periods. Debt to total capital declined to 51% at the end of the third quarter from 55% at the end of the second quarter. Free cash flow for the third quarter totaled $45 million.